Under Florida's 1996 intangible tax, did investment assets retain Florida taxable situs after an 11% Florida-company owner transferred them to a Texas partnership?

Plain-English summary

Florida concluded that the proposed Texas investment partnership and its assets had no Florida taxable situs under the 1996 intangible-tax rules.

The Florida resident, who owned approximately 11% of a publicly traded Florida company, planned to transfer 99% of that stock to a Texas limited partnership for a 99% limited-partnership interest. His Texas S corporation would contribute the remaining 1% and serve as general partner. The partnership's office, records, mail, employees or agents, and implementation of investment decisions were in Texas; the resident made partnership decisions while in Texas.

The Department said the transferred portfolio would no longer be owned, managed, or controlled by the resident in Florida. The partnership interest was exempt because the limited partnership was not registered with the SEC. The partnership and S corporation therefore had no Florida taxable situs on these facts. The resident still had to file for his other taxable intangible property, including the value of his S-corporation stock.

What this means for you

• The Department focused on where the entities' management and operations were actually carried out.
• A non-SEC-registered limited-partnership interest was exempt under the cited 1996 statute.
• Stock in the S corporation remained separately reportable by the Florida resident.

Common questions

Q: Did the resident's Florida domicile alone give the partnership assets Florida situs? A: No, because the ruling found that the partnership's management and operations occurred in Texas.

Q: Was the resident's limited-partnership interest taxable? A: No, because the partnership was not registered with the SEC.

Q: Did the resident still have a Florida filing obligation? A: Yes. He had to report his taxable intangible property, including his S-corporation stock.

Citations and references

• Fla. Stat. § 199.052(1) — return filing for taxable intangible property
• Fla. Stat. § 199.175 — taxable situs
• Fla. Stat. § 199.185(1)(c) — partnership-interest exemption
• Fla. Stat. § 199.042 — payment with return
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-049

Original ruling text

Apr 17, 1996

Re: Technical Assistance Advisement 96(C)2-049 Intangible Tax - Taxable Situs Sections 199.052 and 199.175, F.S. XXX (Taxpayer) XXX (Florida Company)

Dear :

Your letter requesting technical advice on the taxability of a non-Florida partnership, having its principal place of business in the state of its creation, has been received and examined by this office. The scenario presented for consideration is summarized below:

FACTS

Taxpayer is the current Vice President and a member of the Board of Directors of Florida Company, a publicly traded Florida corporation. Taxpayer now has approximately 11% ownership interest in the said entity. Taxpayer is a resident of Florida and he is currently subject to intangible tax on the just valuation of his ownership interest in the Florida company.

Taxpayer is proposing to establish a Texas Limited Partnership and its principal place of business will be maintained in Texas. The limited partnership will not be registered with the Securities and Exchange Commission.

Taxpayer will contribute 99% of his common stock ownership in Florida Company to the Texas Partnership in exchange for a 99% limited partnership interest in Texas Partnership. The remaining 1% of common stock in Florida Company will be contributed to an S Corporation formed under the corporate laws of Texas. The S Corporation will in turn contribute its 1% common stock of Florida Company to the Texas Partnership in exchange for a 1% general partnership interest.

Taxpayer will be President and the sole shareholder of the S Corporation, and the latter will maintain its corporate offices in Texas. The Texas Partnership will function as an investment partnership in Texas with authority to buy and sell marketable securities. The S Corporation, as general partner, will be authorized to manage the Partnership. While in Texas, the Taxpayer, as the President of the S Corporation, will make investment decisions for the Partnership. These investment decisions will be effected by person(s) or agents employed by the Partnership, at its business location in Texas where the permanent books and records of the Partnership will be maintained and all its mail will be received.

The investment assets owned by the Partnership will be held in custodianship in Massachusetts. Copies of all mail received by the Partnership are sent to the Taxpayer, including brokerage account information.

LAW AND DISCUSSION

Subsection 199.052(1), F.S., requires that every person domiciled in this state that owns, manages or controls intangible property having a business situs in the state, must file an intangible tax return. Section 199.175, F.S., states that intangible property shall have a taxable situs in this state when it is owned by a person domiciled in this state or it arose out of business transacted in this state by employees, agents or representatives of any kind from a location within this state or with customers in this state. Paragraph 199.185(1)(c), F.S., provides that the interest of a general partner in any partnership is exempt from the intangible tax.

Interest in a partnership either general or limited, other than the interest of a limited partner in a limited partnership registered with the Securities Exchange Commission, is exempt from the intangible tax.

Once Taxpayer's portfolio is transferred to the limited partnership, in a state other than Florida, and is no longer owned, managed, or controlled by the Taxpayer it would not be subject to the Florida intangible tax. As for Taxpayer's

interest in the Partnership, there is no intangible tax due on this interest. Only an interest as a limited partner in a limited partnership, registered with the Securities and Exchange Commission (SEC), is subject to tax. Limited partnership interests in limited partnerships not registered with the SEC are exempt from the intangible tax. (See s. 199.185(1)(c), F.S.). Assets owned by a foreign limited partnership will not be attributed to the Taxpayer for Florida intangible tax purposes.

Based upon the information provided, S Corporation and Partnership have no taxable situs for intangible tax in Florida. Even though Taxpayer makes decisions about investments as the officer of the S Corporation, which in turn makes investments as the general partner of Partnership, the action of S Corporation and Partnership is carried out at the principal place of business for these entities.

Section 199.052, F.S., requires that every resident of this state that owns intangible property shall file a return and list all taxable intangible property owned by the resident. The payment of tax must accompany the return when filed. (See s. 199.042, F.S.) Taxpayer, a resident of Florida, must file an intangible tax return and list all taxable intangible property owned by him, including the just value of the common stock ownership in S Corporation.

REQUESTED ADVISEMENT

You have requested technical advice on your responses to the following potential issues that might arise in connection with the proposed transactions described above:

Issue 1. Under these facts, will the involvement of Taxpayer as an officer of S Corporation 1, the general partner of Partnership, in the buying and selling of marketable securities, cause the intangible property owned by Partnership to have a taxable situs in Florida?

Your Response: No. The presence of an officer of the corporation in Florida (as resident) will not create a

taxable situs for the intangible assets of any of the entities described above.

Issue 2. From time to time, S Corporation and Partnership may contract with an independent contractor based in Texas for investment management services of the marketable securities held by each entity. Provided that the independent contractor is not a Florida resident, will the intangible assets managed by the independent contractor have a taxable situs in Florida?

Your Response: No. Provided an individual residing outside of Florida has management or control of intangible property belonging to an entity domiciled outside of Florida, the intangible property will not be subject to intangible tax in Florida.

Issue 3. Will the just value of the common stock owned by Taxpayer in S Corporation be subject to Florida intangible tax?

Your Response: Yes. Subsection 199.175(1), F.S., cited above.

Issue 4. Will the just value of the limited partnership interest owned by the Taxpayer be subject to Florida intangible tax?

Your Response: No. Paragraph 199.185(1)(c), F.S., cited above.

CONCLUSION

In summary, S Corporation and Partnership are not subject to the intangible tax. Taxpayer is required to report the stock he owns of S Corporation. Taxpayer's interest in Partnership is not subject to the intangible tax.

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22, F.S. Our response is predicated on those facts and the specific situation summarized

above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this advice is based may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or the response.

Sincerely,

Moses O. Daramola
Senior Tax Specialist
Tax Policy & Dispute Resolution
Office of General Counsel

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